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Prosper Ndlovu, Business Editor
THE introduction of bond notes in Zimbabwe is a viable research-proven model that has been long proposed by experts backed by research findings from practical case studies in other dollarised economies, a study has shown.
The Reserve Bank of Zimbabwe (RBZ) has proposed to unveil bond notes, in two months time, to ease cash shortages in a move that has sparked widespread panic and debate among the business and the transacting public.
In what could be a vindication of RBZ governor, John Mangudya, a study on the ‘Cost Driver Analysis of the Zimbabwean Economy’ conducted by the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU 2014), indicates that the use of bond notes is a standard procedure that has been successfully implemented in other dollarised economies.
Annexure 7 of the study under the topic “Lack of Change”, clearly spells out the need for Zimbabwe to introduce both bond coins and notes for efficient monetary management.
The bond coins, which were introduced in December 2014 to solve the problem of change, have been fully embraced by all.
“In the circumstance of Zimbabwe, there are two options that can be adopted,” reads part of the study.
“Ascertain small denominations of the abandoned Zimbabwean dollars held at the Reserve Bank and introduce the required amount at an exchange rate of US$1 for Z$1.
“This is a cheaper route as the money is already held in the country and there are no costs incurred.”
The other option, according to the study, is to “mint new coins and print new notes of lower value”.
The study further notes that the purpose of the new coins and notes (bond) is to aid efficient small value transactions with the US$ being used for major transactions.
It also suggests that, based on the estimated GDP of about $11 billion, that the cost of the new notes “should be about $200 million”.
Apparently, Mangudya’s proposed bond notes are also backed by a $200 million Afrexim Bank facility while bond coins are backed by a $50 million facility from the same regional bank.
“The introduction of the local dollars (bond currency) would help to ignite economic activity and enhance relevance of the RBZ, which is currently curtailed by undercapitalisation,” reads part of the study.
The research, however, specifies that this monetary initiative should be implemented as part of a broader package of measures to stimulate the economy.
It stresses the need to address the cost drivers, which continue to strangle the economy while stifling investment, as a way of redirecting consumer spending, improving capacity utilisation and reducing unit cost of production.
Major cost drivers include high tariffs (water, electricity, rates), labour, transport and logistics and technology.
Combined with these measures, the study is optimistic that “the local dollars would give guarantee of a certain degree of trading in the economy that is not subjected to the inadequacies of other currencies”.
Reference is made to Panama, a central American country, which is one of the largest dollarised economies having been under this regime for more than 70 years with its local dollars in transactions of small value products.
“The key requirement is that the local dollars should be easily exchangeable to other currencies when the need arises as when one has accumulated too many coins.
“It is therefore recommended that the RBZ evaluates the amount of lower denominated coins and notes (US$5 and below) that is held at the bank to be introduced into circulation,” reads the study.
The government has moved to quell fears over use of the localised dollar following panic reactions based on historic memories over the possible return of the dreaded Zim$ era, which was characterised by hyperinflation.
A majority of Zimbabweans shun the banking system after they lost their money when the country switched to the multiple-currency system in 2009.
To many people, the use of bond notes is a precursor to the return to hyperinflation.
Mangudya, backed by the Bankers Association of Zimbabwe and industry experts, has roundly dismissed the fears and urged Zimbabweans to embrace the new notes.
To augment the initiative, the RBZ has introduced a five percent incentive for exporters and scrapped earlier plans to apportion foreign exchange receipts in rand and euro currencies into authorised dealer’s RTGS accounts for exports.
As part of bold foreign exchange management measures aimed at stimulating the economy, the apex bank also removed the 10 percent threshold on nostro/foreign accounts balances as well as a 15 percent threshold on cash holdings by banks.
derick.khumalo